Deflatory nature of Bitcoin - the problem and a possible solution

[thaaanos]

Edit: I rather doubt China considered it this way when they began cracking down on Bitcoin, but as the country with probably the highest actual appreciation of underlying currency value in the world, they have the most to lose economically (or really, the most advantage to give away, not anything being lost technically) by allowing the free flow that is permitted with Bitcoin.

I think China is so invested in gold, and propably
A. sees bitcoin as a threat to it's gold reserves
B. Most likely thinks that since in the west there is no more gold it's propably a technological sleight of hand
to fuck them over

EDIT: Especially since US tried to send them fake goldbars

Source?? I guess I wouldn't be surprised -- at least, not surprised that there are fake gold bars in vaults. That's why we can't estimate the surface gold amount to more than a full degree of magnitude in precision (i.e. there may be x surface gold, or 10x surface gold; no one is sure.)

a quick google: I think it hit the news around the time Soros decided to ditch gold, I guess he had advance warning and the news must be credible
http://www.exohuman.com/wordpress/2011/02/fake-gold-bars-sold-to-china/

Anyway again, the threat -- if they see it -- is that BTC can be an equalizer between currencies with unequal debasement rates. Thus, our debasement of the USD, by connection via BTC exchange, has a (small but measurable) debasing effect on the CNY, or, looked at inversely, the strength of the CNY trickles to USD (in a small but measurable amount). We're both playing games with our currencies, but the effect of BTC in the mix is to the benefit of the USD, and the detriment of CNY, albeit small (since the BTC market is incredibly small vs. the market caps of USD and CNY).

Shouldnt arbitrage, especially auto-bots nullify this effect? I don't actually get what you mean here. Is there some "friction" between the triplet of USD-BTC-CNY, (that can be exploited? lol)

I've wondered if the interesting and unexpected response in the Senate, and the reversal of China's position since November (when BTC was covered positively on state media) are related. Possibly they fully expected us to ban the whole thing, in which case it WOULD have been a neutral or good thing for China (the currency with the least trade friction is the more attractive currency for making your reserve currency; and China appears to have aspirations of making the CNY a challenger to the USD for other countries' reserve currency).

Maybe the Senate sees is as an alternative to gold, if they ever need to pin USD to something,
(lol can you imagine USD backed by BTC )
and chineese may not like the idea especially after they got in the trouble of sucking up the world's gold.

[FenixRD]

a quick google: I think it hit the news around the time Soros decided to ditch gold, I guess he had advance warning and the news must be credible
http://www.exohuman.com/wordpress/2011/02/fake-gold-bars-sold-to-china/

I'll have to poke around and see what I can find beyond conspiracy sites. Again, I don't doubt for a bit that there are plenty of fakes... I'd think that with the last 10 or 20 years of tech, it'd be really, really easy to spot now. If they were made 30+ years ago, they might've felt they could pull it off, but there's a half dozen inexpensive to moderately expensive ways to detect this now. Maybe that's what happened.

Shouldnt arbitrage, especially auto-bots nullify this effect? I don't actually get what you mean here. Is there some "friction" between the triplet of USD-BTC-CNY, (that can be exploited? lol)

Arbitrage is exactly the cause of it. Because the USD is depreciating against the CNY so quickly -- 1000 USD worth of CNY in 2005 is worth $1435 now, by itself -- arbitrage, whether for this purpose or not, between USD and CNY via BTC, negates the differences, connecting them as a pair in a different way than the planners can control. Thus the USD depreciates a bit less, which also means the CNY appreciates a bit less, relative to each other. As world currencies are connected in this way, this is a good thing for the world as a whole, but I can understand why China might not want to allow this freely, at present.

[thaaanos]

Arbitrage is exactly the cause of it. Because the USD is depreciating against the CNY so quickly -- 1000 USD worth of CNY in 2005 is worth $1435 now, by itself -- arbitrage, whether for this purpose or not, between USD and CNY via BTC, negates the differences, connecting them as a pair in a different way than the planners can control. Thus the USD depreciates a bit less, which also means the CNY appreciates a bit less, relative to each other. As world currencies are connected in this way, this is a good thing for the world as a whole, but I can understand why China might not want to allow this freely, at present.

I see yes, it bypasses capital controls and "fixed" rates, But wouldn't the chinesse prefer a less appreciated CNY (export-wise)? but that maybe just a matter of circumstance, the point is they both US/China lose control.
But what if BTC acts as a "Sink"/Ground sucking up any USD and CNY which may well be the dominant case, wouldnt that break Arbitrage through BTC?

[FenixRD]

Arbitrage is exactly the cause of it. Because the USD is depreciating against the CNY so quickly -- 1000 USD worth of CNY in 2005 is worth $1435 now, by itself -- arbitrage, whether for this purpose or not, between USD and CNY via BTC, negates the differences, connecting them as a pair in a different way than the planners can control. Thus the USD depreciates a bit less, which also means the CNY appreciates a bit less, relative to each other. As world currencies are connected in this way, this is a good thing for the world as a whole, but I can understand why China might not want to allow this freely, at present.

I see yes, it bypasses capital controls and "fixed" rates, But wouldn't the chinesse prefer a less appreciated CNY (export-wise)? but that maybe just a matter of circumstance, the point is they both US/China lose control.
But what if BTC acts as a "Sink"/Ground sucking up any USD and CNY which may well be the dominant case, wouldnt that break Arbitrage through BTC?

It certainly won't break arbitrage; arbitrage takes advantage of temporal differences in exchange rates, and fixes that difference as quickly as the market will allow, taking into account all actual costs of exchange. The only way to "break" arbitrage is to find a way to nullify the existence of time in the equation, and to remove a fee from exchange -- in the absence of a time cost or a fee cost to exchange, you wind up dividing a part of the exchange equation by zero (literally). So a completely frictionless market is impossible, at least from our 3-dimensional perspective, unless a genius figures out how to divide by zero in a consistent way. This is not without precedent in mathematics. The concepts of zero, negatives, and then imaginary numbers all revolutionized parts of mathematics in their day, which we all take as common sense now. I'm not particularly optimistic about the dividing by zero bit, as I suspect it will really come down to "infinite sets" which already can be of different size, yet not... i.e. the set of all positive integers is infinite, yet can be considered larger than the set of all positive even integers, which is still infinite. But I digress.

It's hard to say for sure what they'd prefer: Our currencies are doing pretty much opposite things right now, yet neither is scrambling to reverse course. Our economists seem to think they can keep printing and fiddle with the numbers; theirs seem to be happy with whatever is going on also. It's possible that the players aren't all aware of all the implications of how this will play out, mathematically.

[thaaanos]

Arbitrage is exactly the cause of it. Because the USD is depreciating against the CNY so quickly -- 1000 USD worth of CNY in 2005 is worth $1435 now, by itself -- arbitrage, whether for this purpose or not, between USD and CNY via BTC, negates the differences, connecting them as a pair in a different way than the planners can control. Thus the USD depreciates a bit less, which also means the CNY appreciates a bit less, relative to each other. As world currencies are connected in this way, this is a good thing for the world as a whole, but I can understand why China might not want to allow this freely, at present.

I see yes, it bypasses capital controls and "fixed" rates, But wouldn't the chinesse prefer a less appreciated CNY (export-wise)? but that maybe just a matter of circumstance, the point is they both US/China lose control.
But what if BTC acts as a "Sink"/Ground sucking up any USD and CNY which may well be the dominant case, wouldnt that break Arbitrage through BTC?

It certainly won't break arbitrage; arbitrage takes advantage of temporal differences in exchange rates, and fixes that difference as quickly as the market will allow, taking into account all actual costs of exchange.

Still for it to happen isn't a 2-way flow necessary for equilibrium? if BTC acts as a sink then there is no "Communication" for USD/CNY through BTC.

The only way to "break" arbitrage is to find a way to nullify the existence of time in the equation, and to remove a fee from exchange -- in the absence of a time cost or a fee cost to exchange, you wind up dividing a part of the exchange equation by zero (literally). So a completely frictionless market is impossible, at least from our 3-dimensional perspective, unless a genius figures out how to divide by zero in a consistent way. This is not without precedent in mathematics. The concepts of zero, negatives, and then imaginary numbers all revolutionized parts of mathematics in their day, which we all take as common sense now. I'm not particularly optimistic about the dividing by zero bit, as I suspect it will really come down to "infinite sets" which already can be of different size, yet not... i.e. the set of all positive integers is infinite, yet can be considered larger than the set of all positive even integers, which is still infinite. But I digress.

Since the topic is derailed anyway...
I will claim that the time dimension and for that matter neither the space is a continuum, rather discretum, so at most you will divide
by 5.39106(32) × 10−44.
Mathematically speaking though the equation of exchange is curiusly *not* described as a Partial differential Equation, for the non-linear and wavelike properties markets exhibit, so my take is that it is a simplified version of a more complex one.
Infinity is not a number, its a place

It's hard to say for sure what they'd prefer: Our currencies are doing pretty much opposite things right now, yet neither is scrambling to reverse course. Our economists seem to think they can keep printing and fiddle with the numbers; theirs seem to be happy with whatever is going on also. It's possible that the players aren't all aware of all the implications of how this will play out, mathematically.

I think China play chess, carefully trying to corner US, while US plays poker bluffing all the way

[aminorex]

Still for it to happen isn't a 2-way flow necessary for equilibrium? if BTC acts as a sink then there is no "Communication" for USD/CNY through BTC.

Is there communication through a diode?  There is.

[aminorex]

Wouldnt a rational player hedge the risk of his own single point of failure and pool-hoard/save with others like a savings bank?

I don't care what happens if I fail.  I won't be around to see it.

[thaaanos]

Still for it to happen isn't a 2-way flow necessary for equilibrium? if BTC acts as a sink then there is no "Communication" for USD/CNY through BTC.

Is there communication through a diode?  There is.

more like a transistor in this case, with BTC as Gate

[BurtW]

Great idea, I'm definately interested.

Just wanted to tell you I find this thread very useful. Thank you.

Both reported as possible posting bots.

[allaa]

Deflation never worked well for normal currency's. Right now base on rather limited data it is hard to tell how would metacurrencys react to more excesive actions of larger groups with aim of deflation of them (if i am describing it in right way). Inflation even though look terible in long run might creat more natural environment for future meta-monetary markets.